GAMMON INDIA LIMITED

, the changes in the fair value of the derivative instrument registered after initial statement are recorded,
solely in relation to the effective part, under the item ―Cash Flow Reserve‖ as part of the shareholders‘
equity. When the economic effects originated by that being hedged manifest, the reserve is reversed to the
income statement. If the hedge is not perfectly effective, the fair value change of the hedging instrument,
referring to the ineffective portion of the same is immediately recorded in the income statement for the year.
Vice versa, in the event a derivative instrument is transferred or can no longer be qualified as an effective
hedging instrument, the portion of the ―Cash Flow Reserve‖ representative of the fair value changes of the
instrument, up to that moment recorded, is maintained as a component of shareholders‘ equity and reversed
to the income statement following the classification approach described above, at the same time as the
manifestation of the transactions originally hedged.
The fair value of financial instruments listed on an active market is based on the market prices as of the
balance sheet date. The fair value of instruments which are not listed on an organized market is determined
by using valuation techniques based on a series of methods and assumptions linked to the market conditions
as of the balance sheet date. Other techniques, such as the estimation of the discounted cash flows, are used
for the purpose of determining the fair value of the other financial instruments. The fair value of the interest
rate swaps is calculated using the medium- term rate as of the balance sheet date.
Given the short term characteristics of trade receivables and payables, it is deemed that the book values, net
of any write down allowances for doubtful receivables, represent a good approximation of the fair value.
Minority Interest
Minority interest comprises of amount of equity attributable to the minority shareholders at the date on
which investments are made by our Company in the subsidiaries and further movements in their share in the
equity, subsequent to the date of the investments.
Description of Income and Expenditure Items
Income. Our income comprises turnover, other operating income and other income. We derive our turnover
from contracting income, toll proceeds, annuity income and revenue from project operations. Other
operating income consists of fees, insurance claims received and others. Our other income consists of
dividend income, profit on sale of assets, profit on sale of investments and miscellaneous income.
Expenditure. Our expenditure consists of expenditure on contract and direct costs, establishment expenses,
finance costs, depreciation and amortization of goodwill.
Expenditure on Contracts/Direct Costs. Our expenditure on contracts and direct costs consist of purchases
of materials, sub contract expenses, site personnel expenses, power and fuel, insurance, operation and
maintenance expenses, sales tax, service tax and sundry expenses.
Establishment Expenses. Establishment expenses include primarily salaries (including provision for
commission and bonus), contribution to employees provident fund, ESIS and other funds, insurance,
traveling leave passage and motor car expenses, exchange loss and other miscellaneous expenses.
Finance costs. Finance costs include interest paid on fixed period loans, other loans, provision for marked
to market loss and other finance charges.
Depreciation. Depreciation expenses incurred by us result from the depreciation of buildings, plants and
machinery, furniture, fixtures, motor vehicles, computers, office equipment and certain other items.
Share of Loss in Associates. Share of loss in associates reflects the share of loss being accounted in relation
to loss incurred by associate companies in accordance with equity method of accounting prescribed by
―Accounting Standard –23, Accounting for Investments in Associates in Consolidated Financial
Statements‖ issued by Institute of Chartered Accountants of India.
Minority Interest. Minority Interest indicates profits / losses transferred to minority shareholders in
accordance with their equity shareholding in our Subsidiaries.
Taxation. We provide for current taxes, comprising of income tax and wealth tax, fringe benefit tax and
deferred taxes. Tax on income for the current period is determined on the basis of estimated taxable income
45